More QE for the UK and Sterling exchange rates

By Tom Higham

6th July, 2012

It was announced yesterday, as predicted on this blog, that the Bank of England had announced further Quantitative Easing (QE) in form of another £50 billion injection. Through the central bank’s asset purchasing programme the bank have now pumped £375bn into the economy in order to jump start what is currently a stagnant economy. At the same time the Bank of England also said that they would leave interest rates on hold at 0.5% again as expected. The Bank stated that the UK economy which remains in recession had “barely grown for a year and a half” and mentioned that the exposure to Eurozone debt issues continues to have a negative impact on the country and Sterling exchange rates. One of the main factors in introducing more QE was due to the fact they feel that without it inflation could fall below the 2% target the bank are set. The risk of low inflation or even deflation and an economy that is not growing could have major negative consequences which the bank want to avoid.

Following the Bank of England minutes the European Central Bank (ECB) cut interest rates for the single currency economy to the lowest interest rates have ever been in the EU at just 0.75%. Again, this was widely predicted and as a result led to very little exchange rate movement however the change in rates was positive for those clients looking to buy Euros as Sterling Euro exchange rates pushed up over the 1.25 mark. If you need to buy Euros and are looking to achieve the best possible exchange rates the next week will be important. We have said here for some time that if Sterling is going to push on further against the Euro it will need to first spend an extended time above 1.25 which is currently and has been the level of resistance for some time. If we can spend a week’s trading above the 1.25 level then we could see Sterling exchange rates push on further.

Incorporated in England no. 5082565. Foreign Currency Direct plc is authorised by the Financial Conduct Authority under the Payment Service Regulations 2009 [FRN 538392] for the provision of payment services.